Cash flow keeps any business afloat, without it the company will fail. With the recent down turn in the financial markets business' have become starved of cash because they are unable to raise the funds by the traditional sources such as bank or overdrafts. In many situations the agreed lending facilities that had previously been agreed such as overdrafts are being reduced or withdrawn.
The recent economic downturn has also lead to values in commercial properties decreasing. This has meant that it is almost impossible to raise mortgage finance against a commercial property unless you own the property outright and therefore there is significant equity in it.
Although faced with these issues, there are other options available to you which may assist in raising the cash and improving liquidity in your business.
Asset refinancing is the process where a company borrows against the value of fixed assets within the business. It allows cash tied up in assets to be released and can then be injected back into the business.
Any business asset can be financed, however an independent valuer has to be able to quantify its market value. An example where asset refinancing works well is in the manufacturing and engineering sector as business' within those sectors often own large assets such as machinery which have clear quantifiable resale values.
To gain a good chance of raising cash through asset refinancing, the asset must firstly be wholly owned by the business and there must be no outstanding finance or charge against the asset. The asset is then valued and a can be granted as a percentage of the valuation. The amount of loan agreed differs however it is normally up to a maximum of 70% of the asset value, this is dependant on the underlying credit strength of the business. If the loan is taken out and repayments are not met, then the loan provider will have the legal right to repossess the asset and they may then sell it to try to recover their losses.
Assets that are already on finance can be refinanced, however the existing finance company has to be paid off as part of the process. There is no fixed length of time that the loan has to be repaid, each agreement is different however usually the term of loan is up to 60 months. This term may be shorter if the assets are old or have a short working life.